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Rajputana Mining Agencies and Ors. Vs. Income-tax Officer, 'A' Ward (22.12.1978 - RAJHC) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Civil Writ Petition Nos. 132, 133, 137 to 147, 196 and 353 of 1963
Judge
Reported in(1979)10CTR(Raj)127; [1979]118ITR585(Raj)
ActsIndian Income Tax Act, 1922 - Sections 16(2), 18(5) and 35(9); Income Tax Act, 1961 - Sections 35, 154, 154(1A) and 297(2)
AppellantRajputana Mining Agencies and Ors.
Respondentincome-tax Officer, 'A' Ward
Appellant Advocate Sagar Mal Mehta, Adv.
Respondent Advocate Lekh Raj Mehta, Adv.
Cases ReferredLtd. v. Addl.
Excerpt:
- - mehta, learned counsel for the petitioners in these writ petitions that the condition precedent to the issuance of a notice under section 35 of the act is that the ito should himself be satisfied that the income payable by the company on its profits and gains out of which the company had declared dividends had not been paid within 3 years after the financial year in which the dividends were declared, and that the notice under section 35(9) of the act cannot be issued merely on the basis of instructions issued by the cit. mehta, appearing for the revenue, controverted the aforesaid contention and argued that the notice issued in all the writ petitions showed that the ito concerned had applied his mind and was satisfied that the company had not paid the income-tax on its profits and.....dwarka prasad, j.1. these 15 writ petitions raise common questions of fact and law and as such it would be convenient to dispose of them by a common order.2. the petitioners are the shareholders of m/s. associated stone industries (kotah) ltd., ramganjmandi (hereinafter referred to as 'the company'). the company was incorporated in the erstwhile-princely state of kota on january 17, 1945, as a public limited company for carrying on the business of quarrying and polishing stones. the then maharaja of kotagranted a lease to the company on may 2, 1945, for a period of 15 years beginning from october, 1944. the company distributed dividends to its shareholders, including the petitioners, for the assessment years 1957-58 to 1960-61. the ito, kota, who was the assessing authority in respect of.....
Judgment:

Dwarka Prasad, J.

1. These 15 writ petitions raise common questions of fact and law and as such it would be convenient to dispose of them by a common order.

2. The petitioners are the shareholders of M/s. Associated Stone Industries (Kotah) Ltd., Ramganjmandi (hereinafter referred to as 'the company'). The company was incorporated in the erstwhile-princely State of Kota on January 17, 1945, as a public limited company for carrying on the business of quarrying and polishing stones. The then Maharaja of Kotagranted a lease to the company on May 2, 1945, for a period of 15 years beginning from October, 1944. The company distributed dividends to its shareholders, including the petitioners, for the assessment years 1957-58 to 1960-61. The ITO, Kota, who was the assessing authority in respect of the petitioners did not gross up the dividends received from the company by the petitioners as shareholders thereof under Section 16(2) of the Indian I.T. Act, 1922 (hereinafter referred to as 'the Act'), at the time of the original assessment of the petitioners on the ground that the company did not pay income-tax which it was liable to pay within three years. The petitioners in Civil Writ Petitions Nos. 132 of 1963 and 133 of 1963, filed appeals against the aforesaid orders passed by the ITO, Kota, before the AAC of Income-tax, Jaipur, who held that the dividends paid by the company to the petitioners should be grossed up under Section 16(2) of the Act and credit for the tax should be allowed under Section 18(5) of the Act. After the aforesaid order was passed by the appellate authority, the ITO gave effect to the orders passed by the AAC of Income-tax, Jaipur, and although he did not pass any formal orders, yet he grossed up the dividend income allowing credit for tax and issued correction slips in respect of the tax payable by the petitioners in the aforesaid two writ petitions. In the case of the other petitioners, the Income-tax Officer, Kota, who was the assessing authority, allowed the dividend income received by the petitioners from the company to be grossed up and gave credit for tax to the petitioners under Section 18(5) of the Act.

3. Some time later, the ITO, Kota, issued notices to the petitioners under Section 35 of the Act, stating therein that the assessment orders of the petitioners required modification as they suffered from a mistake apparent from the record because the petitioners had dividend income from the company and the company had not paid tax till then and so the credit allowed to the petitioners under Section 18(5) of the Act in respect of the dividends paid by the company was to be withdrawn under Section 35(9) of the Act. The notices issued to the petitioners by the ITO, Kota, for the rectification of the mistake, as per details given in the respective notices, called upon them to show cause why the credit allowed to them under Section 18(5) of the Act should not be withdrawn and the assessment made in respect of the petitioners be not modified for the aforesaid reason. The petitioners gave almost identical replies to the notices, issued to them by the ITO, Kota, under Section 35 of the Act.

4. The petitioners in Writ Petitions Nos. 132 of 1963 and 133 of 1963 also stated in their replies, besides the grounds taken by all the other petitioners in their replies, that the dividend income received by such petitioners from the company were grossed up and credit for the tax was given to them as a result of the decision of the AAC of Income-tax in their appeals,and that the ITO had no authority to refuse to gross up the dividends and withdraw the credit directed to be given by the AAC of Income-tax. It was stated by all the petitioners in their replies to the notices issued by the ITO, Kota, under Section 35 of the Act that it could not be said that the company did not pay the taxes for the assessment years in question as the company had deposited with the State Government of Rajasthan the amount by way of royalty for the aforesaid years, which amount was not only payable in respect of royalty proper but also included an amount in lieu of income-tax, super-tax and other Central taxes and, thus, so far as the company was concerned, all the taxes due from it had been paid and there was no question of invoking the provisions of Section 35(9) of the Act. The ITO, Kota, rejected the contentions of the petitioners and came to the conclusion that the dividend income in respect of shares which was received by the petitioners from the company was erroneously grossed up since the company had not paid income-tax on profits out of which the dividends were declared by it and that credit under Section 18(5) of the Act was wrongly allowed to the petitioners and the same was liable to be withdrawn by virtue of the provisions of Section 35(9) of the Act. The ITO also came to the conclusion that the aforesaid mistake was apparent from the record and should be rectified under the provisions of Section 35 of the Act. He, therefore, recomputed the total income of each one of the petitioners for the relevant assessment years for the purpose of levying income-tax, super-tax, surcharge, etc., by including therein the amount of dividend income received by the petitioners from the company in respect of their shares and also raised a demand for the difference in the amount of tax payable by the petitioners on the re-computed income and on the income originally computed by him.

5. In these writ petitions, the orders passed by the ITO, Kota, under Section 35(9) of the Act and the demand raised in pursuance thereof have been challenged by the petitioners and it has been prayed that the said orders passed by the ITO and the demand raised by him be quashed.

6. It was argued by Mr. S. M. Mehta, learned counsel for the petitioners in these writ petitions that the condition precedent to the issuance of a notice under Section 35 of the Act is that the ITO should himself be satisfied that the income payable by the company on its profits and gains out of which the company had declared dividends had not been paid within 3 years after the financial year in which the dividends were declared, and that the notice under Section 35(9) of the Act cannot be issued merely on the basis of instructions issued by the CIT. In support of this contention, learned counsel for the petitioners drew our attention to the notice issued under Section 35 of the Act by the ITO, 'C' Ward, Kota, in Writ Petition No. 133 of 1963 and argued that the notice in the case of the petitioners in the otherwrit petitions also appear to have been issued in similar circumstances. Mr. L.R. Mehta, appearing for the revenue, controverted the aforesaid contention and argued that the notice issued in all the writ petitions showed that the ITO concerned had applied his mind and was satisfied that the company had not paid the income-tax on its profits and gains within three years of the year in which the dividend was declared and as such he was justified in issuing the notices under Section 35 of the Act to all the petitioners. Mr. L.R. Mehta submitted that an error was committed by the ITO, at the time of the original assessments, in grossing up the amount of dividend income received by the petitioners from the company and in giving credit to them for the tax under Section 18(5) of the Act. According to the learned counsel for the revenue, the ITO should have included the amount of dividend income received by the petitioners from the company along with their other income for the purpose of computing the total income of the respective petitioners and such a mistake was apparent on the face of the record and that such an error could be brought to the notice of the assessing authority by any person.

7. The relevant provisions of Section 35 of the Act, with which we are concerned, are as under :

'35. (1) The Commissioner or Appellate Assistant Commissioner may, at any time within four years from the date of any order passed by him in appeal or, in the case of the Commissioner, in revision under Section 33A and the Income-tax Officer may, at any time within four years from the date of any assessment order or refund order passed by him on his own motion rectify any mistake apparent from the record of the appeal, revision, assessment or refund, as the case may be, and shall within the like period rectify any such mistake which has been brought to his notice by an assessee:

Provided that no such rectification shall be made, having the effect of enhancing an assessment or reducing a refund unless the Commissioner, the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard... .'

'35. (9) Where the Income-tax Officer is satisfied that the income-tax payable by a company on its profits and gains out of which the company has declared a dividend, has not been paid within three years after the financial year in which the dividend was declared, the amount of income-tax which a shareholder of the company is deemed himself to have paid in respect of such dividend under Section 49B, or the amount for which credit is due to him under Sub-section (5) of Section 18 in respect of such dividend, shall be deemed to have been wrongly computed ; and the Income-tax Officer may, notwithstanding anything contained in this Act, proceed torecompute such amount by reducing it in the same proportion as the amount of income-tax remaining unpaid by the company bears to the amount of income-tax payable by it on such profits and gains, as if the re-computation is a rectification of a mistake apparent from the record within the meaning of this section ; and the provisions of Sub-section (1) shall apply accordingly, the period of four years specified therein being reckoned from the date on which the period of three years aforesaid has expired :

Provided that this Sub-section shall not apply in relation to dividends payable by a company in respect of any previous year relevant to any assessment year commencing on or after the 1st day of April, 1960.'

8. The notices issued by the ITO, Kota, to the petitioners are identical, except the one issued to the petitioner in Writ Petition No. 133 of 1963. The notice issued to the petitioner in Writ Petition No. 132 of 1963, which may be taken to be illustrative of the notices in all the other writ petitions except Writ Petition No. 133 of 1963, runs as under :

'The assessment for the year 1957-58 made on 6-9-62 requires to be modified as there is mistake apparent from record within the meaning of Section 35 of the Indian Income-tax Act. The rectification of the mistake, as per details given below, will have the effect of enhancing the assessment/ reducing refund by Rs. 12,942 and if you wish to be heard, you are requested to appear in person or by representative in my office on 10-2-63 at 11 a.m. If, however, you intend sending a written reply to this notice and do not wish to be heard in person you are requested to ensure that your reply reaches me on or before the date mentioned above.

(SEAL) Sd/- S. D. Agarwal,Note :--Please strike off Income-tax Officer,inappropriate words. A-Ward, Kota.Nature of mistake proposed to be rectified The company has dividend income from A.S.I. (K) Ltd., Ramganjmandi. As the company has not paid tax till now, the credit allowed under Section 18(5) on the dividends of A.S.I. (K) Ltd. are to be withdrawn under Section 35(9) of the 1922 Act.'

9. Thus, considering the case of the petitioners in all other writ petitions, except Writ Petition No. 133 of 1963, a bare perusal of the aforesaid notice shows that the ITO realised that the assessment made in respect of the respective petitioners for the assessment year in question required modification, as the same suffered from a mistake apparent from the record, within the meaning of Section 35 of the Act, and for that purpose the petitioners were required to show cause and appear for a hearing before the ITO concerned or send a written reply to him. The mistake which was proposedto be rectified has also been specified in the notice and it has been clearly mentioned therein that although the company did not pay the income-tax payable by it on its profits and gains during the relevant assessment year, yet the ITO had allowed the petitioners credit for the tax under Section 18(5) of the Act on the amount of the dividend income received by the petitioners from the company and that under the provisions of Sub-section (9) of Section 35 of the Act a recomputation of the income of the petitioners should be made by taking into consideration the income-tax payable by the petitioners on the income received by them from the company by way of dividends. Although the word 'satisfaction' has not been used in the notices issued by the ITO to the petitioners under Section 35(9) of the Act, yet the recitals made in the said notices clearly lead to the conclusion that the ITO felt satisfied that the assessment of the petitioners for the relevant assessment years suffered from an error apparent on the record which was specified in the notice.

10. Learned counsel for the petitioners relied upon the decision of theMadras High Court in CIT v. T.R. Rajakumari : [1974]96ITR78(Mad) and thedecision of their Lordships of the Supreme Court in Sirpur Paper Mills Ltd.v. CWT : [1970]77ITR6(SC) in support of his contention that the ITO shouldhimself apply his mind and should be satisfied independently about, theexistence of the alleged mistake apparent from the record and he shouldnot act merely on the directions received from higher authorities. TheMadras case referred to above related to proceedings for reassessment oftax under Section 147 of the I.T. Act, 1961, and it was held therein that initiation of reassessment proceedings by the ITO on the basis of directionsreceived from the Commissioner were invalid, as a condition precedent forinitiation of reassessment proceedings is a reasonable belief of the ITO himself that the income of the assessee had escaped assessment. In SirpurPaper Mills' case : [1970]77ITR6(SC) applications for revision under Section 25of the W.T, Act, 1957, were disposed of by the Commissioner in accordancewith the instructions of the Central Board of Revenue. In such circumstances, their Lordships of the Supreme Court set aside the order passed bythe Commissioner and directed him to rehear and redecide the revisionapplication afresh, according to law and uninfluenced by any instructionsor directions given by the CBR. In the aforesaid case, their Lordships ofthe Supreme Court held that in the matter of exercise of quasi-judicialpowers by the Commissioner he must apply his unbiased mind and considerthe objections raised by the aggrieved party impartially, and decide thedispute according to the procedure consistent with the principles of naturaljustice and he cannot allow his judgment to be influenced by or dictated byany superior authority.

11. As we have already pointed out above, in all other writ petitions, except Writ Petition No. 133 of 1963, there is nothing on record to showthat the ITO did not apply his independent mind to the facts of the case or that he was influenced or guided in the matter by any instructions issued by the CIT or any other superior authority. On the other hand, a bare reading of the notices issued under Section 35 of the Act shows that the ITO himself considered the matter and felt that the earlier assessment orders suffered from an error apparent on the face of the record and that they required modification in accordance with the provisions of Sub-section (9) of Section 35 of the Act.

12. In L. Hirday Narain v. ITO : [1970]78ITR26(SC) it was held by their Lordships of the Supreme Court that the exercise of power to rectify an error apparent from the record is conferred upon the ITO to ensure that injustice to the assessee or to the revenue may be avoided. The relevant observations of their Lordships of the Supreme Court in this respect are as under (p. 32):

'Exercise of power to rectify an error apparent from the record is conferred upon the Income-tax Officer in aid of enforcement of a right. The Income-tax Officer is an officer concerned with assessment and collection of revenue, and the power to rectify the order of assessment conferred upon him is to ensure that injustice to the assessee or to the revenue may be avoided. It is implicit in the nature of the power and its entrustment to the authority invested with quasi-judicial functions under the Act, that to do justice it shall be exercised when a mistake apparent from the record is brought to his notice by a person concerned with or interested in the proceeding.'

13. Their Lordships quoted with approval the observations of Lord Blackburn in Julius v. Bishop of Oxford [1880] 5 App Cas 214 to the effect that (p. 32)

'the enabling words give a power which prima facie might be exercised or not, but if the object for which the power is conferred is for the purpose of effectuating a right there may be a duty cast upon the donee of the power to exercise it for the benefit of those who have that right when required on their behalf '.

14. If the ITO felt that a mistake had occurred at the time of earlier assessments in grossing up the amount of dividend received by the petitioners from the company and in giving them credit for such amount of dividend income under Section 18(5) of the Act, although the company had allegedly not paid income-tax on its profits or gains out of which such dividends were declared and that such dividend income received by the petitioners from the company ought to be added along with their other income for the purpose of computing the total income of the petitioners, then Section 35(9) of the Act gives a discretion to him to rectify such a mistake and recompute the total income of the petitioners by including therein the dividend income received by the petitioners as shareholders of the company or such proportion thereof as the amount of income-tax remaining unpaid by the company bears to the amount of income-tax payable by the company on such profits and gains. In these circumstances, it cannot be held that the ITO concerned did not apply his independent mind to the facts of the case before issuing the notices to the petitioners tinder Section 35 of the Act.

15. However, so far as Writ Petition No. 133 of 1963 is concerned, it stands entirely on a different footing as in that case, the ITO, 'C' Ward, Kota, while issuing a notice to the petitioner in that writ petition under Section 35 of the Act stated 'the tax credit allowed by way of grossing up of the dividend is to be withdrawn under Section 35(9) of the Act as per the CIT's instructions'.

16. It is, therefore, apparent that in that case the ITO acted under the instructions of the CIT in issuing the notice under Section 35 of the Act. The decision of their Lordships of the Supreme Court in Sirpur Paper Mills' case : [1970]77ITR6(SC) is fully applicable to the facts of the Writ Petition No. 133 of 1963. It cannot be disputed that the functions performed by the ITO under Section 35 of the Act are quasi-judicial in nature and a discretionary power has been given by the Act to the ITO to rectify the mistake which might have crept in the original order of assessment. The Supreme Court has clearly laid down the law on the subject in Sirpur Paper Mills' case : [1970]77ITR6(SC) that when the authority concerned is exercising quasi-judicial powers then he must act with an unbiased mind, consider the matter impartially and according to the principles of natural justice. As the ITO appears to have issued a notice under Section 35 of the Act to the petitioner in Writ Petition No. 133 of 1963 on the instructions of the CIT, it is clear that he did not apply his own mind independently to the facts of the case but he simply acted on the instructions or directions given to him by the CIT.

17. As such, we hold that the notice issued by the ITO, C-Ward, Kota, in Writ Petition No. 133 of 1963 was invalid for the aforesaid reason and the same deserves to be set aside.

18. The next submission made by the learned counsel for the petitioners was that the ITO erred in holding that no taxes were paid by the company within the period of 3 years after the financial year in which the dividends were declared. We have not been able to find any averment in the writ petitions that the company had paid all taxes within the statutory period of three years as specified in Sub-section (9) of Section 35 of the Act. Learned counsel for the petitioners made a reference to the contents of sub-para. D of para. 8 of the writ petitions wherein it has been averred that subsequent to the date of the decree in Civil Suit No. 17 of 1953, the company paid all the undisputed taxes as per the demand of the ITO and that as for the period covered by the decree of the District Judge, Kota, the company hadalready paid the amount of tax in terms of the decree and for the rest it is for the income-tax department to recover the same from the amount deposited by the company and withdrawn by the Rajasthan Government under the orders of the District Judge, Kota. In our view, these averments are insufficient to show that the entire amount of taxes due for the relevant years were paid by the company within the period of 3 years of the financial year in which the dividends were declared by the company, so as to fulfill the condition of Sub-section (9) of Section 35 of the Act. It may also be mentioned that the decree passed by the District Judge, Kota, has been set aside by this court on appeal. Moreover, any amount paid by the company to the Rajasthan Government allegedly in lieu of income-tax, super-tax, surcharge, etc., cannot be held to be a proper payment of such taxes by the company so as to discharge its liability for payment of income-tax, etc.

19. Thus, in the absence of a clear averment that the taxes were paid within the time limited under Sub-section (9) of Section 35 of the Act and on account of the failure of the petitioners to furnish in the writ petitions some particulars of the alleged payments, the contention of the learned counsel for the petitioners cannot be accepted.

20. Mr. L.R. Mehta, appearing for the revenue, stated at the bar that if any amount of tax is found to have been paid by the company within the period of 3 years, specified in Sub-section (9) of Section 35 of the Act, in respect of the assessment years in question, then the department will allow an adjustment to the petitioners in respect of such payments. We need not deal with this aspect any further, in view of the aforesaid assurance given by the learned counsel for the revenue.

21. Then it was argued by the learned counsel for the petitioners that on the date of the notice as well as on the date on which the rectification order was passed by the ITO, Section 35(9) of the Act had been repealed and as no corresponding provision has been made in the I.T. Act, 1961, in this respect, the proceedings for rectification under Section 35(9) of the Act were vitiated. The provisions of Section 297(2) of the I.T. Act, 1961, provide a complete answer to the aforesaid contention advanced by the learned counsel for the petitioners and proceedings for rectification under Section 35 of the Act are maintainable under the provisions of the Act in respect of all assessments which have been made under the Act. Clause (a) of Sub-section (2) of Section 297 of the I.T. Act, 1961, provides that where a return of income has been filed before the commencement of that Act by any person for any assessment year, proceedings for the assessment of that person for that year may be taken and continued as if the 1961 Act had not been passed. Thus, the proceedings for rectification in respect of the assessment years, prior to the assessment year 1960-61, and in relation to which returns of the income had been filed before the commencement of the 1961 Act, have to be takenand continued under the repealed Act. The reassessment proceedings under the provisions of Section 35 of the repealed Act were, therefore, maintainable in these cases on account of the provisions of Section 297(2)(a) of the 1961 Act. We may in this context refer to the decision of their Lordships of the Calcutta High Court in India Co. Ltd. v. ITO : [1971]80ITR400(Cal) . In that case, it was held by the Calcutta High Court that if assessment proceedings are completed under the Indian I.T. Act, 1922, the ITO can initiate rectification proceedings under Section 35 of the Act in respect of such an assessment, even after the I.T. Act, 1961, came into force and on account of the provisions of Section 297(2)(a) of the 1961 Act, such rectification proceedings must be governed by the provisions of the 1922 Act as if the 1961 Act had not been passed.

22. It was also argued by the learned counsel for the petitioners on behalf of the petitioners in Writ Petitions Nos. 132 of 1963 and 133 of 1963 that against the original assessment orders passed by the ITO, the petitioners in both these writ petitions filed appeals before the AAC of Income-tax and it was argued on their behalf in those appeals that the ITO should have grossed up the dividends received by the petitioners in these two writ petitions from the company on the ground that the company had not paid tax. The AAC of Income-tax directed the ITO to gross up the dividends and thus the order passed by the ITO merged in the appellate order passed by the AAC, and, thereafter, the ITO had no jurisdiction to initiate rectification proceedings under Sub-section (9) of Section 35 of the Act, which would have the effect of negativing and setting aside the order passed by the AAC on appeal. We find from the orders of the AAC of Income-tax produced in the aforesaid two writ petitions, that although the ITO had refused to gross up the income received by the petitioners in these two writ petitions by way of dividends from the company on the ground that the company had not paid income-tax, yet on appeal, the AAC directed the ITO to gross up the dividend and give credit of tax to the petitioners under Section 18(5) of the Act. It appears that, as a matter of fact, the ITO, while acting under Sub-section (9) of Section 35 of the Act, was not purporting to rectify in the case of the petitioners in these two writ petitions, any mistake which might have occurred in his own earlier order but he had proceeded to rectify the order passed by the AAC on appeal, because the ITO in both these cases had earlier also taken the view that the dividend income received by the petitioners in these two writ petitions could not be grossed up, on the ground that the company had not paid income-tax and the same order has been passed by the ITO even after rectification under the provisions of Section 35(9) of the Act. It has also been stated before us that after the direction was given by the AAC in the appeals preferred by these two petitioners that their dividend income should be grossed up and credit for tax be allowed to the petitioners under Section 18(5) of the Act, no formal order was passed by theITO, but he merely gave effect to the order passed by the AAC and issued correction slips as a consequence to the appellate order. The question which, therefore, arises in these two writ petitions, is as to whether the ITO was authorised to make a rectification of an error which is said to have been committed by the AAC in directing the grossing up of the dividend income of these two petitioners. In CIT v. Rao Thakur Narayan Singh : [1965]56ITR234(SC) it was held by their Lordships of the Supreme Court that it was not the intention of the legislature to enable the ITO to reopen final decisions made against the revenue in respect of questions that directly arose for decision in earlier proceedings and were finally decided by the Tribunal. Their Lordships of the Supreme Court observed that if that was not the legal position, it would result in placing an unrestricted power of review in the hands of the ITO to go behind the findings given by a hierarchy of Tribunals and even those of the High Court and the Supreme Court, with his changing moods. In the case before their Lordships of the Supreme Court, the assessee went in appeal to the Tribunal against the revised assessment order passed by the ITO and the Tribunal accepted the contention of the assessee, but while passing the order, by inadvertence or by mistake, the Tribunal set aside the entire order of reassessment. No steps were taken to rectify the mistake committed by the Tribunal under Section 35 of the Act nor any attempt was made to get the question of illegality referred to the High Court. Thus, the order of the Tribunal became final. Thereafter, the ITO started fresh proceedings for reassessment. In these circumstances, it was held by their Lordships of the Supreme Court that the order of the Appellate Tribunal having become final and the finding of the Tribunal, even though passed by mistake, the ITO could not initiate fresh assessment proceedings, as the order of the Tribunal was binding on the ITO. In Indra Co.'s case : [1971]80ITR400(Cal) the Calcutta High Court held that when an appeal preferred from an order of assessment is decided by the AAC, the ITO's order under appeal merges in the appellate order and, thereafter, the operative order is the order of the appellate authority and the ITO has no jurisdiction to rectify such an order under Section 35 of the Act, as it would have the effect of rectifying the order passed by the AAC. In S. Sewa Singh Gill v. ITO : [1968]70ITR534(Delhi) the Delhi High Court also took the same view that where the assessment order was affirmed on appeal by the Tribunal, the only order that could be rectified was the order of the Tribunal and the ITO had no jurisdiction to rectify his own order, which had ultimately merged in the order of the Tribunal. In J.K. Synthetics Ltd. v. Addl. CIT : [1976]105ITR344(All) the Allahabad High Court also held that where the assessment order was appealed against, that order, merged in the appellate order passed by the AAC and the only operative decision in law, which is effective and can be enforced, is the decision of the appellateauthority. In Jeewanlal (1929) Ltd. v. Addl. CIT : [1977]108ITR407(Cal) the Calcutta High Court held that the application of the doctrine of merger depends on the nature of the appellate or revisional order in each case.

23. Mr. L. R. Mehta, appearing for the revenue, argued that it was only the ITO, who is authorised under Sub-section (9) of Section 35 of the Act to rectify the assessment order passed by him. Although the ITO has the power to rectify his own order, yet he has no power to rectify the order passed by the AAC on appeal, more particularly in respect of the very question on which, the appellate authority had set aside the order passed by the ITO. If the contention of Mr. L. R. Mehta is accepted then the ITO would have unlimited powers to restore his order even when the same is set aside by the AAC or the Tribunal on appeal. We do not think that any such power was sought to be invested in the ITO under the provisions of Sub-section. (9) of Section 35 of the Act to rectify a mistake or error which is alleged to have been committed by the AAC while reversing the order passed by the ITO. In the instant case, the very question of grossing up of dividend income received by these two petitioners from the company was the subject-matter of appeal before the AAC. The ITO had refused to gross up the dividend income received from the company but the AAC directed him to gross up the dividend income while allowing the appeal of the assessee. Now, under the garb of rectification proceedings, the ITO cannot, under the provisions of Section 35(9) of the Act, restore his earlier order, which would have the effect of setting aside the order passed by the AAC on appeal. In our view, the whole purpose of creating a hierarchy of authorities having appellate or revisional jurisdiction would be frustrated if the ITO, who has passed the original assessment order, can set aside any order passed in appeal or revision, more particularly in respect of such questions which were expressly raised and decided by the appellate or revisional authority. Once the matter has been decided by the appellate or revisional authority, the order of the ITO would merge with the order of the AAC or Commissioner, at least in respect of those questions which were expressly raised and decided by the appellate or revisional authority. The I.T. Act of 1961 has given statutory recognition to this doctrine of merger by providing in Section 154(1A) that where any matter has been considered and decided in any proceedings by way of appeal or revision relating to an order, the authority passing such order may amend the said order by way of rectification in relation to any matter other than the matter which has been so considered and decided. Thus, the questions which are expressly raised before or decided by the appellate or revisional authority cannot be reagitated and no rectification proceedings will be maintainable in respect thereof, under Section 154 of the 1961 Act, before the ITO in the garb of amending his ownorder. Therefore, in these two Writ Petitions Nos. 132/63 and 133/63, the ITO had no jurisdiction to rectify his orders which have already stood merged with the order passed by the AAC and the rectification orders passed by the ITO in the case of these two petitioners are without jurisdiction.

24. As a result of the aforesaid discussion, the Writ Petitions Nos. 132 of 1963 and 133 of 1963 are allowed, while the remaining 13 writ petitions are dismissed. In the facts and circumstances of these cases, the parties are left to bear their own costs.


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